VOL. 131 | NO. 26 | Friday, February 05, 2016
Midtown Memphis Ready for Apartment Building Boom
By Madeline Faber
It’s been more than a decade since new apartments were built in Midtown, and that’s poised to change in a big way with a wave of new multifamily construction stretching from Binghampton to Crosstown.
Small apartment complexes, like the Midtowner on Union Avenue, are remodeling units and asking for higher rents. Overlooking The Midtowner is the blighted Artisan Hotel, which will be razed to make way for dense, mixed-use Class A apartments.
(Daily News/Andrew J. Breig)
New apartment construction has traditionally been focused in Collierville and Downtown, but Midtown is showing itself as an in-demand submarket.
“You’re going to see more happen in Midtown in the next three years than I’ve seen in my whole career,” said Jimmy Ringel, COO of Makowsky Ringel Greenberg, an owner and operator of multifamily property with significant Midtown holdings.
According to data from CBRE Inc., 47 percent of new apartment construction, in terms of units, will take place in the Midtown area in 2016. That figure includes the Highland Row development, Crosstown Concourse and the expected groundbreaking of Midtown Market at Union and McLean avenues. When the developers get the ball rolling, Overton Square apartments from Loeb Properties and two apartment projects from MRG – at Madison and McLean avenues as well as at Broad Avenue and East Parkway – will add fuel to the multifamily fire.
And initial rents are going to be higher than what Midtown is used to. With limited lots available and the high cost of construction, property taxes and operating expenses, anything newly built has to be Class A product.
“At some point, to say I’m going to build something and make it affordable is financially not feasible,” said Ringel. “In order to build something, you almost have to aim at the top tier of the market just to pull it off.”
Nationally, most new construction is addressed to the top-tier market. Across the U.S., there is about a 138 percent gap between top-tier effective rents, at $1.40 per square foot, and older product, which is a little less than a dollar per square foot.
In Midtown specifically, effective rates range from $0.93 per square foot to $1.25 per square foot, according to third-quarter data from CBRE.
“Affordability is a concern in the trade media,” Ringel said. “There’s a demand for nice stuff, but at some point, we’re going to – as an industry – run out of people who can afford to pay it.”
Ringel said Memphis’ rent premium gap is more like 130 percent, but Memphis is slower to pace with most national trends. He’s just glad the market for Class A, “Downtown-like” product has finally arrived. Ninety percent of Memphis’ housing stock was built before the 1980s with many buildings, like MRG’s Midtown Place complexes, dating back to the 1910s and 1920s.
“There’s no doubt about it, Midtown is definitely going to get more expensive.”
Makowsky Ringel Greenberg
Ringel has been slowly testing the market by rehabbing vacant Stratford Place apartments and asking for rents $250 to $350 higher. He hasn’t had a problem filling the “new interior” apartments, and other small developers are doing the same thing.
Ringel said the development community looks to the The Bristol on Union as a measuring stick for high-dollar product. Built in 2004, the apartment community’s 170 units are currently 92 percent occupied. Monthly rents range from $900 up to $2,200 for three-bedroom apartments.
When Belz Enterprises first announced its 188-unit project at the corner of Union and McLean, average rents came in at $1.43 per square foot with two-bedroom rents up to $1,560 per month.
“Our focus will be to bring a new Class A apartment product offering to the market that will cater to the young professionals, students and medical workers,” Belz stated in its October 2015 application for tax breaks from the Downtown Memphis Commission. Even though the project was outside of the traditional Downtown limits, the DMC said it granted the tax breaks because Midtown Market was seen as “high-impact” and “catalytic” for the area.
Like Crosstown Concourse and the proposed projects from MRG and Loeb, the Midtown Market project is a dense, mixed-use offering, the likes of which Midtown has never seen before. When completed, the development will have a gourmet grocery store and retail offerings on the ground floor in addition to apartment amenities.
“My understanding is, you need to do retail on the bottom and residential on the top to make the project more affordable to the developer,” said Sam Goff, who sits on the board of the directors with the Midtown Memphis Development Corp.
He believes the growth is healthy, and the mixed-use apartment buildings are in step with Midtown’s zoning overlay.
Goff sees the booming interest in Midtown apartments as the fulfillment of years of revitalization in developments like Overton Square, the Levitt Shell and the Broad Avenue corridor.
Midtown pulled these high-dollar investments off, and the vibrant environment is attracting everyone from young professionals to suburbanites. As a mortgage originator for Independent Bank, Goff said that Midtown is the hot submarket with home prices generally selling for more than asking price.
“Which is mind-boggling to people like me,” he added. “I don’t see it changing any time soon and probably going up.”
When it comes to the renting environment, he doesn’t see Midtown becoming unaffordable for the time being.
“But we’ll see people squeezed out here and there,” he added.
“There’s no doubt about it, Midtown is definitely going to get more expensive,” Ringel added. “But Midtown was going to get more expensive anyway, even if these guys weren’t doing their projects.”